Resource Curse Reversal? Negative Shocks and Development in Russian Regions

• In Event: Pushing the Boundaries of the Resource Curse: New Directions in Oil and Politics

Abstract

Scholars have extensively studied the economic effects of revenue increases from natural resources. This article investigates how declines in resource revenues affect economic outcomes focusing on Russian regions. Based on difference-in-differences analyses of statistical data and interviews with decisionmakers, businesspeople, and scholars in two resource-rich regions chosen based on a most-different cases approach, I find that Russia’s oil- and gas- producing regions experienced an increase in private investment in fixed capital and small business market entry following a permanent decline in their natural resource revenues due to budget centralization in 2002. In contrast, private investment and small business entry did not increase after the regions suffered a negative shock from global oil and gas price drop in 2014, which was expected to be temporary. I rule out economic explanations for these divergent outcomes and argue that the permanent shock led regional elites to compensate for the lost revenues by improving overall institutions and the business climate, while the temporary shock prompted short-term solutions.

Author

• Delgerjargal Uvsh, University of Texas at Austin